Stephanie Simion and Michelle Kilfoyle
9 December 2021
Recent UK government proposals to reform higher-education funding, under which graduates would start repaying their student loans on lower salaries, have triggered concerns around disproportionate and negative effects on lower earners. A recent study has assessed the impacts of past changes to higher-education funding for students from different income groups in England. It finds that price hikes to tuition fees in 2006 and 2012 have not led to fewer poorer students going to university due to financial support in the form of loans and grants.
In fact, it is students from wealthier families, who are less likely to be eligible for financial support, who are now slightly less likely to enrol. The reforms also appear to have had only very small effects on students’ choices of degree subject and university location, and on their short-term career prospects.
Rising tuition fees
Many countries are considering reforms to higher-education funding. England has had three major reforms in recent decades, beginning in 1998 with a switch from no fees to means-tested fees of up to £1,000 per year.
This was followed by a rapid series of changes which now see England’s students paying among the highest undergraduate tuition fees in the world at up to £9,250 a year. Only students at private universities in the US pay more.
The financial burden of tuition fees naturally raises concerns that students from poorer backgrounds will be deterred from going to university.
Socio-economic consequences The new study, by Stefania Simion of the University of Bristol’s Centre for Evidence-based Public Services (CEPS) in the School of Economics, in collaboration with Ghazala Azmat of Sciences Po in France, unpicked rich datasets to better understand the consequences of different methods for financing higher education.
The researchers assessed enrolment rates, choice of university and subject, and post-university outcomes for students who entered higher education in England between 2004 and 2013, using data on all state-school educated students – around 2.8million individuals.
Their analysis revealed the effects of the increase in fees to £3,000 per year in 2006 (up from a maximum of£1,000, depending on family income), and the short-term effects of the 2012 reform which raised fees to their present maximum level of £9,250.
Enrolment rates and financial support
Enrolment rates across all students fell slightly, by 0.5 percentage points, after the 2006 reform, and again in the year following the 2012 reform. However, this drop was largely among students from wealthier families, classed by this study as those with an average household income of £43,000 or more.
Changes in enrolment rates for students from poorer families (with an average household income of £29,000 or less) and middle-income families (average household income of £34,000) were negligible.
These results can be explained by the financial support packages that accompanied the increases in fees.
Notably, since 2006, students in England do not have to pay fees upfront but can instead take out a loan to cover the cost. They repay this with interest over their working lives and only once their salary passes a certain threshold, currently £27,295 for those who took out a loan after 2012, or £19,895 pre-2012.
On top of this, means-tested grants of up to £2,700 were introduced in 2006 (up from £949) rising to £3,250 in 2012, plus means-tested loans of up to £4,000 in 2006, and £5,200 in 2012.
This package eases the financial burden of fees, but also means that higher education is relatively more costly for students from families who do not receive means-tested support, potentially explaining the slight drop in student numbers from higher socio-economic backgrounds.
The study calculates that an increase in fees of £1,000 for wealthy students not eligible for grants corresponded to a drop in enrolment of only around 0.025 percentage points. But there was an 0.8 percentage point increase in enrolment among students who were eligible for full financial aid.
Degree subject, university location and career outcomes
The higher cost for wealthier students may also explain why the study found that they were more likely to choose a university close to home after the reforms. It may also explain a slight shift in subject choices. Post-reform, wealthier students were slightly less likely to opt for degrees in Arts and Education programmes, preferring STEM subjects that offer higher-paid careers.
These choices could translate into different career outcomes for wealthier students. Six months after graduating, they had marginally higher earnings and they were also less likely to be unemployed or in insecure work than graduates from less well-off backgrounds compared with the pre-reform period. However, average earnings for middle and low-income groups fell slightly after the reforms.
Closing the socio-economic gap in higher education
In sum, the results show that the funding reforms have had only very small effects on higher education choices, but do suggest that the socio-economic gap in university enrolment is narrowing.
The study’s authors recommend a deeper look at the data to understand if more could be done to promote university to students from the poorest backgrounds, with family incomes far below the £29,000 threshold used in this study